Chapter 11 - Managing International Operation (Part 1)
Summary
TLDRThis lecture delves into managing international operations, focusing on capacity planning and facility location strategies. It discusses assessing a company's production capabilities to meet fluctuating market demands, including decisions on reducing output or expanding facilities. The importance of selecting optimal production sites based on resource availability, labor costs, customer needs, and transportation is highlighted. The script also covers the economic benefits of location economies and the strategic decisions between centralization for cost efficiency and decentralization for market customization.
Takeaways
- 📈 Capacity Planning: It's crucial for a company to assess its ability to produce enough output to meet market demand, which can fluctuate and thus requires flexible production strategies.
- 🔍 Estimating Global Demand: Firms must accurately estimate the global demand for their products to align production with market needs effectively.
- 🛠️ Adjusting Production: When output exceeds demand, companies may reduce production by cutting manpower or work shifts to avoid overproduction.
- 🏭 Facility Expansion: Managers must decide whether to expand existing facilities or add new ones to meet growing market demands.
- 🌐 Location Decisions: Firms need to consider adding facilities in new locations to better serve customer demand in different areas.
- 🏗️ Facility Location Planning: Choosing the right location for manufacturing facilities is key, considering access to resources, labor, and transportation.
- 🌳 Resource Availability: The availability and cost of raw materials are significant factors in facility location decisions, with examples like Goodyear Tire opting for Malaysia due to abundant rubber resources.
- 💼 Labor Costs and Productivity: Multinational companies often seek locations with lower wages and high productivity to optimize labor costs.
- 🛒 Customer Needs and Accessibility: Firms must consider customer accessibility and needs, such as choosing non-congested areas for stores like Tesco with ample parking.
- 🚚 Factory to Market Proximity: The distance between production facilities and target markets affects transportation costs and delivery times, influencing location decisions.
- 🌐 Location Economies: Firms aim to locate production in areas that offer the best economic benefits, such as lower production costs, to achieve a competitive advantage.
- 🔧 Centralization vs. Decentralization: Centralization focuses on concentrating production in one optimal location for cost efficiency, while decentralization involves spreading facilities across different markets for product customization and adaptation.
Q & A
What does capacity planning involve in the context of managing international operations?
-Capacity planning involves assessing a company's ability to produce enough output to satisfy market demand, taking into account the fluctuating nature of customer demand, and making decisions on production adjustments, such as reducing manpower or work shifts when demand decreases.
How can a firm reduce production when the output exceeds market demand?
-A firm can reduce production by decreasing the number of workers or adjusting work shifts to align with the reduced market demand.
What factors must managers consider when market demand is growing and they need to expand output?
-Managers must determine whether the existing facility can expand output or if additional facilities are needed, considering the maximum capacity of the firm and potentially adding more machinery or manpower to fulfill the increased demand.
Why might a firm decide to open a new facility in a different location?
-A firm may decide to open a new facility in a different location if the existing facility cannot capture the demand anymore, requiring an estimation of the number of rooms, manpower, and other resources suitable for the new area to meet customer demand.
What is the concept of subcontracting in the context of capacity planning?
-Subcontracting involves letting another party produce part or all of the finished product on behalf of the firm, which can be a strategy to maintain good customer service and avoid stock unavailability.
What is facility location planning and why is it important?
-Facility location planning is the selection of an optimal location for production facilities, ensuring sufficient access to customers, resources, and transportation. It is important because it affects production costs, efficiency, and the ability to meet customer needs.
What are the key considerations for a firm when choosing a location for its manufacturing facility?
-Key considerations include the availability and cost of raw materials, labor costs and productivity, customer needs, and the distance between the factory and the market to minimize transportation costs and time.
Why might a firm choose a particular location for its production facility based on resource availability?
-A firm might choose a location with abundant and cost-effective resources, such as rubber in Malaysia for a tire manufacturing company, to ensure a steady supply of raw materials for production.
What is the significance of location economy in facility location planning?
-Location economy refers to the economic benefits derived from locating production in an optimal location, which can help lower the cost of production and achieve a competitive advantage by taking advantage of lower labor costs, skilled labor, or other economic incentives.
What are the two basic strategies for locating production facilities, and how do they differ?
-The two basic strategies are centralization, which involves concentrating production in one location to achieve economies of scale and lower costs, and decentralization, which involves spreading facilities across different locations to cater to regional markets and customize products according to local preferences.
How does a firm benefit from centralizing its production facilities?
-Centralizing production allows a firm to focus on mass production in a location that offers lower costs, skilled labor, and other economic benefits, which can lead to reduced production costs and increased efficiency.
What are the advantages of decentralization in managing international operations?
-Decentralization allows a firm to have various regional or national facilities that can focus on producing customized products tailored to local market preferences, infrastructure, and government requirements, enhancing customer satisfaction and market adaptation.
Outlines
📈 Capacity Planning and Production Strategies
The first paragraph introduces the concept of capacity planning, which is the assessment of a company's ability to produce sufficient output to meet market demand. It highlights the fluctuating nature of customer demand and the challenges it poses for businesses. The speaker explains that firms must estimate global demand accurately and adjust production accordingly, which may involve reducing manpower or work shifts if demand decreases. Conversely, if demand grows, managers must decide whether to expand existing facilities or add new ones. The paragraph also touches on subcontracting as an alternative to in-house production when demand exceeds capacity, emphasizing the importance of maintaining customer satisfaction and product availability.
🌏 Facility Location Planning and Economic Considerations
The second paragraph delves into facility location planning, discussing the selection of optimal sites for production facilities based on access to resources, labor costs, productivity, customer needs, and transportation efficiency. It uses the example of Goodyear Tires establishing a facility in Malaysia due to abundant rubber resources and lower labor costs. The paragraph also covers the importance of proximity to the target market to reduce shipping time and costs, as illustrated by Toyota's decision to build a manufacturing plant in the U.S. for easier market access. Additionally, the concept of location economies is introduced, where firms choose locations that offer the best economic benefits for production, potentially leading to lower costs and a competitive advantage.
🏭 Centralization and Decentralization in Production Facility Strategy
The third paragraph contrasts two strategies for locating production facilities: centralization and decentralization. Centralization involves concentrating production in one optimal location to achieve economies of scale and reduce costs, suitable for products with universal needs that do not require customization. Decentralization, on the other hand, involves spreading facilities across different locations to cater to regional preferences and requirements, allowing for product differentiation and adaptation. The paragraph emphasizes the strategic decision-making involved in choosing between these approaches based on product characteristics and market demands, using examples from various industries to illustrate the concepts.
Mindmap
Keywords
💡Capacity Planning
💡Product Differentiation
💡Market Demand
💡Facility Location Planning
💡Resources Condition
💡Labor Costs and Productivity
💡Customer Needs
💡Factory to Market Distance
💡Location Economy
💡Centralization
💡Decentralization
Highlights
Capacity planning involves assessing a company's ability to produce enough output to meet market demand amidst fluctuating customer demand.
Firms need to estimate global demand accurately to manage the complexity of capacity planning due to uncertain customer demand.
In situations of overcapacity, firms may reduce production by decreasing manpower or work shifts.
Managers must decide whether to expand existing facilities or add new ones to meet growing market demand.
Firms can increase production capacity by adding machines or manpower or by opening additional facilities in different locations.
Subcontracting is an option for firms to outsource part or all of the production to maintain customer satisfaction and availability.
Facility location planning is crucial for selecting the optimal site for production facilities with access to customers, resources, and transportation.
Raw material availability must be in the right quantity, quality, and delivered on time to ensure uninterrupted production.
Firms may choose locations with abundant and cost-effective resources, such as rubber in Malaysia for Goodyear Tire.
Labor costs and productivity are key considerations in multinational companies' decisions on where to establish production facilities.
Proximity to the target market is essential to reduce transportation costs and time in reaching customers, as exemplified by Toyota's U.S. manufacturing plant.
Location economy refers to the economic benefits derived from choosing the optimal location for production to lower costs.
Firms can achieve a low-cost position by locating production activities where they have a comparative advantage, like Silicon Valley for tech firms.
Centralization involves concentrating production in one location to take advantage of economies of scale and lower production costs.
Decentralization spreads production facilities across various locations to cater to regional preferences and requirements.
Decentralized production allows for customization and adaptation of products to meet specific market demands and regulations.
Boeing's example illustrates the benefits of decentralization, with R&D in the US, assembly in Seattle, and global sourcing for components.
Transcripts
assalamualaikum and greetings to all my
international business students so today
we will continue with the remaining part
of chapter 11 managing international
operation okay from that last class I
have explained what is production what
is local CD and product differentiation
so now we will proceed with capacity
planning okay you can see here from the
slide capacity planning means assessing
a company's ability to produce enough
output to satisfy the market demand as
what we know the customer demand are not
constant okay you can reduce or it also
can increase so for the uncertainty of
customer demand this will increase the
complexity of the capacity planning so
for this situation the firm need to meet
the changing demand of their product or
services so firm need to estimate the
global demand for their product
accurately but in the situation where by
the capacity or the output is more than
the market demand so the firm has to
make the decision to reduce the
production so how to do reduce to the
production is by by reducing the number
of manpower and to reduce the book ship
work shift okay so if market demand is
growing managers must determine if
present facility can expand output or
whether additional facility are needed
so the firmly to see in terms of the
maximum capacity of the firm let's say
in the assisting from as you see
facility what they can do they can add
more machine or can add more power
manpower to fulfill the demand but let's
say if the thing cannot capture the
demand anymore they need to make
decision to add more facility in another
location okay so for example there is no
telling qaddafi
can they opened a branch in understa and
literally decide to open another branch
in Detra so
in this situation they need to estimate
the number of room the number of
manpower they are suitable to get the
customer in the new area which is titre
okay so another option for the firm okay
beside of either they need to expand the
editing facility or to add more facility
in other locations they also can have
option whether they can suck on the work
to other producer ok subcode mean to let
the other party to reduce the part or
also the finished product
on behalf okay so this situation need to
be done because the firm again need to
maintain a good image to their customer
ok they don't want to have a situation
whereby they meet they need to tell
their customer
sorry stock not available we are out of
top ok so this is not good for that mesh
ok so for a firm day we will try their
best to fulfill the customer demand and
always able to - to fulfill ok they
always the stock is always available
when customers need the stock ok next we
move to the facility location planning
okay so for F a CT location planning it
was selection of location for production
facility so in this situation it means
the the firm need to find the right
location for the manufacturing facility
so it should have the sufficient access
to customer work resources ok and also
transportation ok first I will explain
about the resources condition ok
resources a firm need to get raw
material ok to produce product they need
to get the raw material so the raw
material must be in the right quantity
quality and also need to be received on
the right time ok this is to ensure that
we there will be no interruption in
terms of production beside that when it
involves a perishable item ok
everything the transportation
and the item of path it's the raw
materials need to receive at a
production site as soon as possible this
is to avoid the thing to get from from
sport or damage okay another thing about
resources condition is the availability
of the resources that the location can
offer the resources at cheaper costs
okay so one example we can see that we
have this good year tire from us
okay they also have open a facility in
Malaysia because there's abundant of
rubber resources that offer energy
because in Malaysia ok next the labor
costs productivity so the firm or
multinational company usually they will
take advantage of the lower wages in
another country okay beside the lower
wages they also need to see in terms of
the productivity
here we no use if I say low wages but
low productivity they need to balance ok
the country must offer lower wages and
also the worker can what can offer high
productivity for the firm's ok sometimes
the productivity in poor or developing
country is very low ok so they need to
find country work and offer low wages
and high productivity the third one is
service customer needs ok so a firm must
consider the wide variety of customer
needs ok for example like a Tesco a big
hypermarket they decide they want to
open in the hypermarket they must choose
the right area the area must not be
congested easily for a customer to reach
the hypermarket they have to offer free
parking
ok so they have to identify what
actually customer needs ok
and last one is the factory to market
distance so the greater the distance
between the production facility and a
target market so this means the shipment
will take
the time okay this means that the
shipment we take longer time to reach to
customer and sometimes involve greater
distance larger distance it means more
transportation casa okay facility
locations selected need to be closer to
the market trouser to the customer so
that in this situation they can reduce
the transportation cost and also reduce
the time in reaching the customer so for
example like what we have is to your
table from Japan they also have decided
to build a manufacturing plant in u.s.
ok they can produce or assemble the
automobile and the car can be easily
sell to the customer customer in u.s. ok
now we move to location economy so the
explanation here location economy means
the economic benefit derived from
locating the production in optimum
location ok
so in this situation it means the
location can do it best and the cheapest
ok compared to other location they have
made the comparison so this location is
best the best location for them to do
the creation to do the valuation
activity skillful for why they choose
this location the aim is to lower the
cost of the production which can help
them to achieve a low cost positions ok
for example let's see if the best
programmer okay there are many best
programmer they are located in the
Silicon Valley in u.s. so the
programming activity should be like
located there in this Silicon Valley
okay let's see if the best assembly
operation ok for pc or automobile are in
mexico so the firm should locate the
assembly in mexico so by locating the
value creation activity on optimal
location as i mentioned it can help
lower the cost of production and help
the company to achieve low-cost position
okay so that's why for the location of
economy many firms from US and Japan
they decided to set up production in
Southeast Asia because of the cheap
labor costs okay for does for this
location economy okay it doesn't mean
that focusing only on production okay if
you remembered for the value chain
activity we have rnd we have production
we have marketing customer service again
so example let's say company Eve okay
design ice-hockey treatment in Sweden
then they can assemble they can focus on
assembling the product in Denmark
okay and then they can sell the ice
hockey product with North American in
Europe
okay same like Boeing okay for the R&D
and designed after aircraft they will
focusing the location in Washington US
and Japan they will assemble the
aircraft in Seattle and the engine they
will get it from rewritten the aircraft
till ok it's made in China okay so this
is what we call the advantage of each
location where they can perform each of
the value change activity so what we
expect is the end result is the cheaper
cost and also good product quality okay
now we move to centralization and
decentralization okay as we can see here
they are two basic strategy for locating
the production facility
number one is centralization
centralization mean concentration of
production facility in one location so
they need to choose one best location
for them to focus their production there
and once the product is ready then they
can export and sell their product
worldwide okay for the location that
they choose okay the same thing okay
they need to find a location that they
can offer
lower costs and lower costs okay so they
want to pursuit what they want to gain
is the low cost and also to take
advantage of economical skill produce in
validation produced in large quantity
mass production they can reduce the cost
of production yeah and then the
centralization here is suitable for
product that serf the universal needs
universal needs product for example like
ba chemical pharmaceutical product steel
paint okay I buy for this Universal
product the no need for the firm to do
customization or adaptation the taste
and preferences of customer in different
market are similar que no need for them
to customize ax so that's why they can
choose one location and then they des
can export to do to any market to the
market truck to any market throughout
the world okay the second one is
decentralized decentralization which is
the opposite okay does it mean they will
have many facility in different market
in different location so it will spread
the facility over several location
okay so decentralization means they will
have various regional or national
facility okay and then each of this
facility will focus on the production
and producing for that for each market
okay so for this centralization what the
focus is different Asian it is now
centralization they focus on lower costs
okay on the other hand is relaxed
decentralization will focus more on
different agenda product different Asian
edition on a product that means
customization doing adaptation for each
of the different market for market area
is different okay Maccabi is different
market see is different
okay so product differentiation need to
be done because there is a significant
differences in customer taste customer
preferences
infrastructure the technical the
government requirement so that's why
they need to use some kind different
machine need to change the ingredient
the content modify the design ok the
specification okay so each of the
location will focus on production for
that market only
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